It’s 2013, Do You Know What Your Annually Adjusted State Tax Bracket Is?

Bloomberg BNA writes: State individual income tax rates can affect all sorts of behavior during the tax year, such as where the taxpayer chooses to carry on business, or where he chooses to live. Annual indexed changes to other elements such as the standard deduction and personal exemption amounts can affect taxpayer’s deductible expenses or willingness to donate to charity.

But as a recent report by the Tax Foundation makes clear, finding this basic tax rate information on state tax department websites is difficult or impossible in some jurisdictions. Annual indexing adjustments to tax bracket amounts is another complicating factor.

Thirty-four states have statute-based income tax brackets which are not indexed and thus do not vary from year to year. While this may seem transparent, as taxpayers don’t have to worry about varying rates and can predict their tax liability in advance, there is a hidden downside to static tax brackets—inflation. 

As salaries increase with inflation, the fixed income brackets do not, causing taxes to go up disproportionately. This “bracket creep” is not always apparent to taxpayers, becoming a hidden tax increase that hides behind the often opaque wall of the tax code. 

However, even those states which recognize this problem and index for inflation must also be aware of the need for transparency in income tax brackets. The seventeen states which index income tax brackets for inflation publicize their rate changes at varying times in the year, as shown in the chart below. Often the rates are not published at the same time of year, or in the same format as the year before, leaving taxpayers confused and unsure about their tax liability for that year.

Below is a cheat sheet for those seeking to remain current on the latest state inflation adjustments.

For more information about the importance of indexing for inflation, see the August 2011 policy brief from the Institute on Taxation and Economic Policy (ITEP).

States	Indexed Tax Brackets, Standard Deduction, and Personal Exemption	Indexed Personal Exemption Only	2012 Tax Information	2013 Tax Information	Notes
Arkansas	X			Estimated Tax Form – 1/13
California	X		Press Release – 8/12	2013 rates not yet released
Idaho	X		Website –April 2012	Estimated tax form not yet released	Uses personal exemption amounts provided by the federal code
Iowa	X			Tax Rate Schedule – 11/12
Maine	X		Tax Alert Publication – 10/11	Tax Alert Publication – 1/13
Massachusetts		X			Personal exemptions amounts have not changed since 2008
Michigan		X	Income Tax Return Form – 10/12	Not yet released
Minnesota	X		Press Release – 12/11	Press Release - 12/12	Uses personal exemption amounts provided by the federal code
Montana	X			2013 rates not yet released	2013 exemption amount released on 2013 estimated tax form
Nebraska		X	Estimated Tax Form – 12/11	Estimated Tax Form – 11/12
North Dakota	X			Estimated Tax Form – No date published	Uses personal exemption amounts provided by the federal code
Ohio			News Release – August 2012	Estimated Tax Form – 10/12
Oregon	X			Estimated Tax Form – 12/12
Rhode Island	X			Tax Advisory – 12/12
South Carolina	X			Estimated Tax Form – 9/12	Uses personal exemption amounts provided by the federal code
Vermont	X			Estimated Tax Form – No date published	Uses personal exemption amounts provided by the federal code
Wisconsin	X		Estimated Tax Form – 11/11	Estimated Tax Form – 1/13

By Melissa Fernley, chart by Martelli-Yndee Borieux